What is Merchant Discount Rate and How it Works?
Merchant Discount Rate and How it Works
Today’s digital advancement have brought many conveniences in the lives of consumers. E-commerce is now gaining more traction due to its digital mode of payment. By acknowledging the convenience and the various advantages of digital payment, consumers are gradually adopting this process. The technological evolution have gained the trust of consumers where they are likely to spend more on e-commerce websites due to its transparency and the monetary guarantee.With the global rise of e-commerce and online platforms, businesses will have to adapt to the variation and a more complex method of payment processing costs. Paying from multiple sources is now a viable option as consumers are offered with electric network payments. It is beneficial for both customers as well as merchants. When customers pay via network payments, merchants will require a minimum charge where the charge helps support the payment of the merchant discount rate.
1.What is Merchant Discount Rate & How it works in Malaysia
Merchant Discount Rate or the common abbreviation known as MDR is a fee which is assessed upon the process of receiving payment from a customer charged via debit and credit card. MDR comprises of a range of elements such as fees, network charges, mark-ups, assessments and dues by the merchant which are required for debit and credit card payments. Specifically, the MDR is also inclusive of interchange fees, miscellaneous fees like cross-border fees or zero-limit fees, point-of-sale and gateway fees. To make it simple, a consumer purchases goods or services from a merchant and uses a debit or credit card to make payment which is typically done with the use of a point-of-sale device at the merchant’s outlet or online websites. Upon receiving the payment, the merchant bank charges a fee which is the MDR. Once the MDR fee is collected by the merchant bank, it is then split with the bank that issued the credit card which has been used, the bank that provided the device or POS terminal and the payment network (such as Visa Mastercard and so on).
2.How Merchant Fees are Determined
There are several key factors on how merchant processors determine the merchant discount rate in Malaysia including:
- General risk of the industry
- Mode of card payment processing – such as internet, terminals
- Annual credit selling volumes
As a merchant, what do you need to know on how to calculate the merchant discount rate? Customarily, the MDR is calculated as a percentage of the value of each transaction that is processed. The rates often depend on the level of business transactions, types of cards used by the customers (debit or credit) and the value of the average sales or average ticket. The interchange fee is the key component of the discount rate. In addition to the interchange fee, all ISOs and banks have reals costs where a merchant makes profit by adding a mark-up to the mentioned fees. Several price models will be utilised to work out the fees that will be charged and merchants can expect a fee payment ranging between 1% to 3% for each transaction that is processed. The fees and fee agreement involved in an account for a merchant can be complicated. A wide range of providers are available to choose from to assist the merchants and each provider offer varying fee schedules. By using a specific provider, the merchant will be required to pay a processing fee for the deposit and network and interchange fees for obtaining an amount from the customer’s account. The additional costs for added security in e-commerce makes merchant discount rates typically higher for this market. Fee schedules are typically charged at the merchant discount rate although there are payment providers who provides charges at a flat monthly rate. The latter is usually based on an assumption of the volume of transactions that will be processed. The merchant is required to pay for two providers for each transaction if the service arrangements include an interchange provider with a bank. A bundled merchant discount rate through bundling all network processing is available with a bank but this generally increases the fees.
3.Importance of MDR and Other Payment Processing Fees
Payment processors are able to support all types of merchant payments with well-established infrastructures and fee schedule arrangements set in place. As part of sustaining the infrastructure and services, payment processing fees are vital which will also further encourage the global e-commerce market. Payment processors have led to faster transaction processing and automated point-of-sale systems with multiple payment options including debit and credit cards. Enabling an expansion in business activities, the connection between payment processors and merchants is the thrust to technological advancement.
The merchant discount rate is a payment charged to merchants upon processing transactions through debit and credit cards. In order to accept payments by the mentioned cards, merchants are required to set up the merchant discount rate and agree to the specified amount. Both customers and merchants generally benefit from electronic payment networks, allowing payment from a range of sources. Merchants should take into account at requiring a minimum charge as it could support the payment of the merchant discount rate. For payment processing, merchants have a range of available options too. For easier fee structures and lower rates, Fintech processors are recommended. Processing fees through banks are higher due to the full-service consolidation. Fintech processors can also set up the merchant payment processing directly with a bank and most of the payment processors offer e-commerce payment processing for more convenience. A good option to process the merchant discount rate in Malaysia is by using EZYLINK. EZYLINK is a platform where online transactions can be accepted even without a website. Developed by a Fintech company with cutting edge and easy-to-use technology, EZYLINK aims to serve businesses to their needs and focusing on creating better deals. All that needs to be done is sending a page to your customer and have your payment completed once they fill in the details. EZYLINK offers payment processing internationally with quick onboarding and no monthly subscription charges. Make your business easier today with EZYLINK anywhere at any time.
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